Tesla (TSLA) stock fell 5.5% on Wednesday, its biggest loss in two months, after a Wall Street analyst warned it was time to take some money off the table.
In a note to investors on Wednesday, Barclays analyst Dan Levy downgraded Tesla shares to Equal Weight from Overweight, claiming that the recent rally has ignored near-term questions about the stock’s fundamentals. Although Tesla isn’t quite trading on fundamentals — it’s currently trading at a forward P/E of 80 — Levy makes some interesting points about where Tesla stock has fared compared to just a month ago.
“We believe the stock’s recent rally may be best explained by the market’s current AI-driven thematic trade, as well as excitement over recent announcements of opening up the TSLA Supercharger network to other brands,” Levy said in his note. “While we are not surprised by the stock’s share of the rally, we think it would be wise to move to the sidelines.”
Levy’s main downgrade thesis rests on three main points: the impact of artificial intelligence that may be exaggerated, Tesla’s recent Supercharger deals and uncertain benefits, and most importantly, how multi-expansion really represents “the whole pool.”
As for AI, the recent surge in Nvidia and other AI-related stocks spinning around Tesla made sense because of the company’s projects like FSD (Full Self-Driving), its Dojo supercomputer, and its Optimus robot (although it is somewhat ironically the president’s The executive warned Elon Musk about the dangers of artificial intelligence). But Levy believes AI is a “long-term” opportunity for Tesla, not something it can now count on to significantly boost its valuation.
Likewise, Tesla’s charging deals with Ford, GM and Rivian are seen more as creating “marketing benefits” for Tesla, with any gains likely to reappear in the long term, Levy says.
Levy said the biggest factor in Tesla’s stock increase by nearly $300 billion was its rising multiplier. Tesla’s fundamentals haven’t changed in the near term, and while other AI-related stocks have seen positive earnings revisions that have led to increases in market value, this isn’t the case for Tesla.
Levy believes a number of factors are at odds with this inflated buildup, including that Barclays believes Tesla’s 2024 EPS estimate is still too rosy and needs to be lowered. Additionally, Tesla’s margins are still “uncertain” given the recent price cuts, though it’s possible that margins may have decreased. Finally, further price cuts may be necessary as Model 3 inventories appear to bulge, and ramping up Model Y production in Giga Austin and Berlin may require further price cuts, again hurting margins.
All that said, Levy remains a long-term bullish on Tesla’s prospects, not just a buyer at these levels. We still see TSLA as the long-term winner among OEMs in the race to the EV world, Levy says, but “the near-term fundamentals have to be kept in mind.” “
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